Japanese pushing small high-technology firms

Press, 29 August 1984, Page 33

Japanese pushing small high-technology firms

By

LINDA SIEG,

of Reuters

(through NZPA) Tokyo Japanese venture businesses — firms set up by an entrepreneur with little money but a good idea — are being promoted by the Government to help assure Japan’s competitive edge in the high-technology field.

“Venture businesses are springing up like bamboo shoots after a heavy rain,” an official at Nikko Venture Capital Company, Ltd (NIVEC), told Reuters. Given the flexibility of the term, it is difficult to estimate how many such firms have appeared since the venture business boom took off two years ago. But the powerful Ministry of International Trade and Industry (MITI) and its handmaiden, the Small and Medium Enterprise Agency (SMEA), want to harness their creativity to propel Japan’s economy into the age of the new technological revolution.

Local governments are also hoping to jump on the venture-business bandwaggon and lure such firms as key elements in plans to revitalise their economies. The reason for all the

attention is clear. A recent SMEA report showed that the small firms cluster heavily in fields at the technological forefront — micro-electronics, biotechnology, new materials, and computer systems. “Every country is making positive challenges to develop high-technology,” the report said. “Japan must also increase its efforts in these untrodden fields.” MITI efforts to encourage high-technology research and development are many and varied, but the Ministry looks to venture businesses to lead the way in areas once dominated by large enterprises. “The idea used to be to protect small firms because they were weak," the Bank of Tokyo assistant manager for industrial research, Mr Masaya Funahasi, said. “Now the idea is to cultivate them because they have technology and ability.”

The size of the venturebusiness boom can to some extent be gauged by the rapid growth of venturecapital companies which provide funds to the firms in hopes of high rates of return. Eight such firms were founded in the early 1970 s and six of them are

still in business. But the initial venture capital wave, cut short by the 1973 oil shock, has been eclipsed by recent events.

Since August, 1982, when the Nihon Investment Finance Company was established, 35 new venturecapital firms have emerged, a NIVEC survey said. Government figures show that 22 of these companies had invested 38.8 billion yen (SNZ33B million) by the end of 1983, half the total in 1983 alone. But the growth of venture-capital firms seeking new investment and loan outlets has not guaranteed easy access to capital for venture businesses. Venture-capital firms, most firmly under the wing of the banks and securities companies which founded them, remain reluctant to invest in firms just starting up, the NIVEC official said. “All the venture-capital firms are competing to invest in a few conspicuous success stories,” he said. “Money isn’t necessarily flowing to the firms that need it the most.” The scale of venture capital investment here remains far behind that in the United States. The SMEA report said more than 400

American venture-capital firms had invested about SUS 7.6 billion (SNZIS.2 billion) at the end of 1982. In theory, a new source of funds to small firms was opened by last November’s relaxation of regulations for raising capital by offering stocks in over-the-counter trading. But some believe the reforms did not go far enough. “The basic idea is still to protect the investor,” Mr Funahasi said. Some steps have been taken to remove obstacles to venture-business growth. Three Government-financed agencies in Tokyo, Osaka, and Nagoya set up systems early this year to provide equity money for venture businesses. MITI is now drafting a bill to present to Parliament next session which may include loans and subsidies, tax breaks and relaxation of anti-trust law to allow closer ties between venture capital and venture businesses. Officials say the bill would benefit all smaller firms. But financial sources say their reticence is doubtless influenced by fear of United States accusations of unfairly targeting certain industrial sectors.